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The euro held steady on expectations the European Central Bank will act to rein in surging borrowing costs. But a rise in the CBOE Volatility Index, a gauge of Wall Street's sensitivity to risk, and a pause in the recent run-up in US Treasury yields suggested investors were yet to be convinced that Europe's three-year crisis is close to resolution.

"The recent rally in riskier assets had been built on a lull in Europe, so they are ready to face a correction when hopes for something unrealistic fade," said Takeo Okuhara, a fund manager at Daiwa SB Investments. He was referring to speculation that the ECB would buy bonds to cap the yields of troubled eurozone sovereigns.

"Economic data confirmed fundamentals are not strong, with a slowdown in China, which relies heavily on exports to Europe, having material effects elsewhere," he said.

European markets were seen falling, with financial spreadbetters calling London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open down as much as 0.8%.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%, led by sharp declines in the energy and materials sectors.

Japan's Nikkei stock average dipped 0.3% as investors cashed in gains from a sharp run-up on mounting hopes for ECB action, just as US stocks fell on Tuesday after the Standard & Poor's 500 index hit a four-year high.

Japan's exports fell an annual 8.1% in July, the deepest drop in six months, dragged down by collapsing shipments to Europe and a sharp fall in sales to China. The fragile report from the world's third-biggest economy followed similarly bleak data from export-reliant South Korea and Taiwan.

Oil traded in ranges, capped by growth worries but supported by ECB hopes. Brent was up 0.1% to $114.77 a barrel and US crude also inched up 0.1% to $96.94. Copper was down 0.2% to $7 595 a tonne ahead of earnings from top global miner BHP Billiton, which may put three mega projects on hold on Wednesday when it will likely report its first annual profit fall in three years.

BHP will wrap up a torrid earnings season for the world's biggest miners, all battered by weaker prices for iron ore, copper, coal, nickel and aluminium as economic growth in big-buyer China slows to its weakest pace in a decade.

Also limiting the downside is some view that Asian equities are not yet overbought. Flows of foreign capital remain important direction-setters for many Asian markets.

Net foreign buying stood at $8.1bn so far in August, Credit Suisse said in a research note, below an overbought level.

Such purchases on a rolling 12-month basis is 0.6% of market capitalisation, below the 1% level seen overbought, Credit Suisse said, while net foreign buying over two months stands at 0.26%, less than the 0.6% or more seen as overheated.

ECB speculation dies hard

Speculation that the ECB will take a decisive step to cut borrowing costs for Spain and Italy gained further momentum with an article in London's Daily Telegraph, that said the ECB was examining plans to put a hard cap on Spanish and Italian yields.

A similar report in German media was on Monday denied by the bank, which repeated its stance in response to the latest British report.

Meanwhile, German Chancellor Angela Merkel voiced support for the ECB's crisis-fighting strategy last week.

Greek Prime Minister Antonis Samaras is holding bilateral talks with leaders of France, Germany and the Eurogroup this week to seek concessions for its austerity-to-bailout swap.

"The market rallied on growing convictions that Germany stands ready to do more to keep the euro zone united. Merkel's government seems more willing to ease the official debt burden on Greece, as long as the basic elements of the second bailout programme remain," Barclays Capital said in a research note.

Spain's 10-year debt yields have shed about 8% this month on growing hopes for concrete action.

The euro traded at $1.2466, not far from $1.2488 hit on Tuesday, its highest since July 5.

Spot gold steadied around $1 638.66 an ounce, near a three-and-a-half month high of $1 641.20 touched on Tuesday.

Asian credit markets were weaker, pushing the spread on the iTraxx Asia ex-Japan investment-grade index by two basis points.

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